Quick Answer
Affordable housing in India is governed by four overlapping legal frameworks, each with a different qualifying definition. Developers must navigate PMAY eligibility, 1% GST conditions, Section 80-IBA tax holidays, and RERA obligations simultaneously. No single statutory definition applies across all frameworks, and compliance requirements differ significantly depending on which benefit a developer seeks to claim.
India’s affordable housing segment is the largest and fastest-growing category in the country’s real estate market. Government support is substantial: the GST Council has fixed the rate at 1% for qualifying units, Section 80-IBA of the Income Tax Act, 1961 offers a 100% profit deduction for eligible projects, and the Pradhan Mantri Awas Yojana provides direct Central Assistance to developers and beneficiaries. The opportunity is real and well-supported.
The regulatory challenge is equally real. Four major legal frameworks each define “affordable housing” differently. A project that qualifies for the 1% GST rate may not meet the Section 80-IBA conditions. A unit counted under PMAY-Urban may not align with the RERA definition. Developers who proceed without mapping these definitions to their specific project risk losing significant fiscal benefits and exposing themselves to compliance failures.
This guide sets out the legal framework governing affordable housing in India for developers, housing finance companies, and programme administrators in 2026. We cover the four statutory definitions, PMAY developer obligations, GST structuring, income tax benefits, RERA compliance, and land use conversion requirements.
For a broader overview of how Indian real estate law applies across asset classes and transaction types, see our Real Estate Industry Guide.
What Qualifies as Affordable Housing Under Indian Law?
There is no single statutory definition of affordable housing in India. Four separate legal frameworks apply different criteria, and a project can satisfy one definition without satisfying another.
Framework | Carpet Area Limit | Price / Value Cap | Additional Conditions |
PMAY-Urban | Up to 30 sq.m. (EWS); up to 60 sq.m. (LIG) | None specified at unit level | Beneficiary income eligibility applies |
RERA | Defined by state authority; no uniform national cap | Varies by state notification | State-specific rules govern |
GST Council (1% GST) | ≤60 sq.m. in metros; ≤90 sq.m. in non-metros | Transaction value ≤₹45 lakh | Both area and value conditions must be met simultaneously |
Income Tax Act, 1961 (Section 80-IBA) | ≤30 sq.m. in metros; ≤60 sq.m. in other cities | ≤₹45 lakh | No commercial component; plot and completion conditions apply |
A developer should note that satisfying the GST Council’s carpet area and price threshold does not automatically satisfy the Section 80-IBA conditions. The metro carpet area limit under Section 80-IBA is 30 sq.m., while the GST threshold for the same metros is 60 sq.m. A project with units of 45 sq.m. in a metro may qualify for the 1% GST rate but will not qualify for the income tax deduction.
Mapping each benefit against the project’s specific unit mix before launch is essential. Altacit Global assists developers with this multi-framework eligibility analysis as part of project structuring.
PMAY (Pradhan Mantri Awas Yojana): Legal Requirements for Developers
PMAY-Urban: Overview and Phase 2
PMAY-Urban was launched in 2015 with a target of providing housing for all urban households by 2022. Phase 1 ran from 2015 to 2022. Phase 2, referred to as PMAY-Urban 2.0, was launched in 2024 and extends the programme with revised Central Assistance structures and updated beneficiary categories.
The scheme covers four verticals:
- Beneficiary-Led Construction (BLC): Individual beneficiaries construct or enhance their own homes on their own land.
- Affordable Housing in Partnership (AHP): Developers construct housing units in partnership with state or urban local bodies, with Central Assistance passed to eligible beneficiaries.
- In-Situ Slum Redevelopment (ISSR): Redevelopment of slum land using it as a resource for housing.
- Credit Linked Subsidy Scheme (CLSS): Interest subsidy on home loans for EWS and LIG beneficiaries.
Central Assistance under PMAY-Urban 2.0 ranges from ₹1.5 lakh to ₹2.5 lakh per EWS unit depending on the vertical and state category. Developers participating under the AHP vertical receive this assistance only after fulfilling specific conditions.
Developer Obligations Under PMAY-BLC and PMAY-AHP
Developers participating in the AHP vertical carry the most significant legal obligations under PMAY.
Key requirements include:
- Minimum project size: AHP projects must comprise a minimum of 250 units.
- Completion timeline: All units must be completed within three years of project approval.
- Land contribution: The developer or state government must contribute land; Central Assistance does not cover land cost.
- Transfer of Central Assistance: Developers must transfer the full Central Assistance amount received to the eligible beneficiary. Retention of any portion of this amount constitutes a compliance breach.
- EWS unit proportion: At least 35% of units in AHP projects must be allocated for EWS beneficiaries.
Failure to complete units within the three-year window or to transfer Central Assistance to beneficiaries can result in recovery of funds and disqualification from future PMAY participation.
PMAY Compliance Documentation
PMAY participation requires ongoing documentation obligations throughout the project lifecycle. Developers must maintain and submit:
- Memorandum of Understanding (MOU): Executed with the state government or urban local body before construction commences.
- Aadhaar-linked beneficiary records: All beneficiaries must be identified and verified through Aadhaar linkage. Non-Aadhaar-linked beneficiaries cannot be registered under the scheme.
- Quarterly progress reports: Submitted to the state nodal agency and the Ministry of Housing and Urban Affairs through the PMAY-Urban Management Information System (MIS).
- RERA registration: Projects meeting the RERA threshold must be registered under the Real Estate (Regulation and Development) Act, 2016 before any marketing or sales activity. PMAY participation does not exempt a project from RERA registration.
- Utilisation Certificate: A Utilisation Certificate confirming that Central Assistance funds were applied to eligible construction must be submitted to the state nodal agency upon project completion.
Incomplete documentation is one of the most common reasons for Central Assistance disbursement delays. Developers should treat documentation compliance as a parallel workstream from project approval.
GST on Affordable Housing: 1% Without ITC
The GST Council has fixed the GST rate on affordable housing at 1% without Input Tax Credit (ITC). This rate applies where both of the following conditions are met:
- Carpet area: The unit has a carpet area of 60 sq.m. or less in metropolitan cities, or 90 sq.m. or less in non-metropolitan cities and towns.
- Transaction value: The gross transaction value of the unit does not exceed ₹45 lakh.
Both conditions must be satisfied simultaneously. A unit with a carpet area of 55 sq.m. in a metro city priced at ₹50 lakh does not qualify for the 1% rate. The standard rate of 5% without ITC applies instead.
The loss of ITC at the 1% rate is a cost that developers must factor into project pricing. Since input taxes paid on construction materials and services cannot be recovered, the 1% rate represents an absolute GST liability rather than a net liability after credits.
Mixed projects require careful GST structuring. Where a developer constructs both affordable and non-affordable units in the same project, separate invoicing for affordable and non-affordable units is mandatory. Consolidated invoicing across unit types creates GST compliance exposure and prevents verification of rate applicability at the unit level.
Income Tax Benefits for Affordable Housing Developers
Section 80-IBA: Tax Holiday for Approved Projects
Section 80-IBA of the Income Tax Act, 1961 provides a 100% deduction of profits derived from the development and construction of affordable housing projects. The deduction is available in the year in which the income is earned, subject to the project satisfying all prescribed conditions.
Conditions for Section 80-IBA eligibility include:
- Project approval date: The project must have received approval from the competent authority on or after 1 June 2016 and on or before 31 March 2022 (for the original window). Extensions have been announced; developers should verify the current operative deadline with tax counsel.
- Completion timeline: The project must be completed within five years from the date of approval by the competent authority.
- Carpet area limits: Individual unit carpet area must not exceed 30 sq.m. in metropolitan cities (Delhi, Mumbai, Chennai, Kolkata, Hyderabad, Bengaluru, and their adjoining areas) or 60 sq.m. in all other cities and towns.
- Price cap: The stamp duty value of the unit must not exceed ₹45 lakh.
- Plot size: The plot on which the project is built must have an area of not less than 1,000 sq.m. in metropolitan cities or 2,000 sq.m. in other areas.
- No commercial component: The project must not include any commercial construction. A single project combining residential affordable housing with commercial space does not qualify for Section 80-IBA.
The deduction is significant. For a developer earning ₹10 crore in profit from a qualifying project, the effective corporate income tax liability on that profit is reduced to nil. The incentive is designed to attract private capital into the EWS and LIG segments where margins are typically lower.
Altacit Global advises developers on Section 80-IBA qualification analysis, including assessment of project approval dates, carpet area compliance, and plot size requirements.
RERA and Affordable Housing: Same Obligations Apply
Affordable housing projects are not exempt from RERA obligations under the Real Estate (Regulation and Development) Act, 2016. All obligations that apply to standard residential projects apply with equal force to affordable housing projects.
Key obligations include:
- Project registration: Any residential project exceeding 500 sq.m. of land or eight apartments must be registered with the state RERA authority before marketing or sales commence.
- Escrow account: 70% of all amounts received from buyers must be deposited in a designated escrow account and used only for land and construction costs for that specific project.
- Quarterly updates: Developers must update the RERA portal with project progress on a quarterly basis, including construction status and financial disclosures.
- Occupation Certificate before possession: Developers cannot hand over possession of a unit to a buyer without obtaining the Occupation Certificate from the competent authority.
- Five-year defect liability: Developers bear a five-year structural defect liability from the date of possession. Any defect notified by the allottee within this period must be rectified by the developer at no additional cost.
PMAY participation does not modify or reduce any of these obligations. A developer who markets PMAY-registered units without RERA project registration is in breach of the Real Estate (Regulation and Development) Act, 2016 and exposed to penalties under Section 59, which include fines of up to 10% of the estimated project cost.
For a detailed guide to RERA compliance obligations for developers, see our RERA Compliance Guide.
Land Use Conversion for Affordable Housing
Most affordable housing projects in India are developed on land originally classified for agricultural or other non-residential use. Conversion of land use is a prerequisite to construction and must be completed before the development permission application is submitted.
The process involves three stages:
- Collector’s conversion certificate: The developer applies to the District Collector (or equivalent authority) for conversion of the land from agricultural or other classification to residential use. Documentation requirements vary by state but typically include title documents, survey records, and a site plan.
- Development permission: Following conversion, the developer obtains development permission from the relevant urban local body or development authority, confirming that the proposed construction is consistent with the applicable town planning scheme and land use regulations.
- Layout approval: The layout plan for the affordable housing project is submitted to and approved by the planning authority, including road widths, open space reservations, and utility infrastructure.
Several states have implemented expedited land use conversion processes for affordable housing projects. Rajasthan, Maharashtra, and Telangana have at various points introduced single-window clearance mechanisms for PMAY-linked affordable housing projects to reduce administrative timelines.
Developers should verify the current conversion procedures with state-level legal counsel before acquiring land for an affordable housing project. Altacit Global handles land use conversion matters across its offices in Chennai, Bangalore, Hyderabad, Kochi, and Coimbatore.
Structure Your Affordable Housing Project on a Solid Legal Foundation
Affordable housing in India carries genuine commercial opportunity. The fiscal incentives are substantial and improving regulatory clarity is making project structuring more predictable. Developers who align their projects with the correct legal framework from the outset secure these benefits. Those who do not risk losing GST benefits, income tax deductions, and PMAY Central Assistance through avoidable compliance failures.
The four-framework complexity, PMAY documentation obligations, GST structuring requirements, and RERA compliance are all areas where early legal engagement pays measurable dividends.
Altacit Global advises real estate developers on PMAY documentation and compliance, GST structuring for mixed and affordable housing projects, Section 80-IBA eligibility analysis, RERA registration and ongoing compliance, and land use conversion across all major Indian states. Our teams operate from offices in Chennai, Bangalore, Hyderabad, Kochi, and Coimbatore.
To discuss your affordable housing project’s legal requirements, contact us at info@altacit.com.
Q1: Can a developer claim both the 1% GST rate and the Section 80-IBA deduction for the same project?
Q1: Can a developer claim both the 1% GST rate and the Section 80-IBA deduction for the same project?
Yes, in principle, but only if the project independently satisfies the conditions of each framework. The GST condition for metropolitan units requires carpet area at or below 60 sq.m. The Section 80-IBA condition for metropolitan units requires carpet area at or below 30 sq.m. A metro project with units of 45 sq.m. will qualify for the 1% GST rate but will not qualify for Section 80-IBA. A project with units at or below 30 sq.m. in a metro may qualify for both, subject to all other conditions being satisfied separately for each benefit.
Q1: Is there a minimum project size for PMAY AHP participation?
Yes. The Affordable Housing in Partnership vertical of PMAY-Urban requires a minimum of 250 units per project. Projects below this threshold do not qualify for Central Assistance under AHP. Developers seeking PMAY participation with smaller land parcels should assess whether a joint development arrangement with an adjacent landowner could aggregate unit count to the required minimum.
Q1: Does the ₹45 lakh price cap for the 1% GST rate include or exclude GST?
The ₹45 lakh threshold applies to the transaction value, which is the consideration paid for the unit exclusive of GST. GST is applied on top of the transaction value. A unit priced at ₹45 lakh (exclusive of GST) will attract GST of ₹45,000 at the 1% rate, bringing the total consideration to ₹45.45 lakh. Developers should confirm this treatment with their GST consultant, as stamp duty calculations in some states reference the gross consideration including taxes.
Q1: Can commercial space be included in an affordable housing project?
For GST and RERA purposes, a mixed-use project that includes both affordable residential units and commercial space is permitted, provided invoicing is maintained separately for each category of unit. For Section 80-IBA purposes, the answer is no. The income tax deduction under Section 80-IBA is available only to projects with no commercial construction component. Including any commercial space in a project eliminates Section 80-IBA eligibility for the entire project, not only for the commercial portion.
